Vietnam's bonds have best week in eight on interest-rate outlook

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Vietnam's government bonds had their biggest weekly rally since early June on speculation the central bank will cut borrowing costs. The dong was little changed.

The economy may expand 5.3 percent this year as local and overseas demand cools, Vu Viet Ngoan, chairman of the National Financial Supervisory Commission that advises Prime Minister Nguyen Tan Dung, said in a telephone interview on Friday. Gross domestic product increased 5.9 percent in 2011, official data show, and the government's target for this year has been reduced to 6 percent from as much as 6.5 percent.

"Investors have increased bond holdings, given the current economic situation," said Tran Kieu Hung, a Hanoi-based bond trader at Bank for Investment & Development of Vietnam. "We expect some rate cuts by the central bank in the coming months."

The yield on the five-year notes fell two basis points, or 0.02 percentage point, to 9.73 percent on Friday as of 3:33 p.m. in Hanoi, according to a daily fixing rate from banks compiled by Bloomberg. The yield dropped 15 basis points this week, the most since the five days through June 8.

Vietnam's central bank has reduced its key interest rates five times this year. Consumer-price gains slowed for an 11th month in July to 5.35 percent, official data show. Annual inflation may be "around 5 percent" this year, Ngoan said.

The dong was little changed on Friday and for the week at 20,858 per dollar, according to data compiled by Bloomberg. The State Bank of Vietnam set the currency's reference rate at 20,828, unchanged since Dec. 26, according to its website. The dong is allowed to trade as much as 1 percent on either side of the rate.

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